Eating the competition Featured

10:29am EDT December 28, 2005
You wouldn’t expect Detroit to be a hot pizza market. Automobiles, of course. Manufacturing, definitely. But cheesy, crusty, delivered-to-your-door Italian pies?

“Detroit is one of the pizza capitals of the U.S.,” says Steve Jackson, president of Hungry Howie’s Pizza.

Pizza destinations such as New York City or Chicago can grapple over which serves up the best slice, but Detroit is the founding city of three major chains. A good 10 years before Hungry Howie’s time, there was Little Caesar’s, famous for its “pizza-pizza” two-for-one promotion, and Domino’s, which once promised dinner on the table in “30 minutes or less.”

Many entrepreneurs would consider Taylor, where founder Jim Hearn planted his first Hungry Howie’s store, a no-fly zone. Why set up shop in a neighborhood with two competitive cooks already in the kitchen?

“We cut our teeth in a very competitive market,” says Jackson, who started his career at Hungry Howie’s delivering pizzas for Hearn. “But the environment taught us a lesson over the past 32 years on how to compete in any market.

“Each company throughout our industry picks their niche and direction and tries to be competitive with that,” he says, describing the pressure to find an original way to concoct America’s favorite take-out food.

A crowded market forced Hungry Howie’s to get creative, and it fulfilled consumers’ appetites for a different kind of crunch with its trademarked flavored crusts. The crusts are Hungry Howie’s calling card and provide the differentiation the company needs to stand out, but they are only one part of its growth.

The homegrown business has multiplied into 526 national franchises with systemwide sales of $243 million in 2004. Jackson says strong systems, grassroots management and trusting franchisee relationships help maintain Hungry Howie’s standing as the ninth largest pizza franchise operation in the country.

Systems for consistency
Before Hungry Howie’s started feeding 17 states and Canada, the pizzeria was operated by a fraternity of close friends and family members who opened the first 10 stores within 25 miles of each other. Systems and metrics weren’t etched in stone — how to prep toppings, prepare the dough, season the crusts and market the brand were all open to interpretation.

“We were as mom-and-pop as you could get,” Jackson says. “I jokingly say we had a cigar box to put our money in and our barometer for profitability was our checkbook. If there was money left at the end of the month, then we did OK.”

When entrepreneurs showed an interest in investing in a franchise, Jackson realized Hungry Howie’s quality promise would suffer without systems to guide new franchisees through the process of delivering its signature pie.

“When we made the decision to franchise the business in 1981, we had to transfer the knowledge we had, which was grassroots and street-smart, to other people so they could execute the business,” Jackson says.

In the meantime, there was plenty of competition, and Hungry Howie’s could not risk quality while trying to establish its brand.

“We had to start systemizing anything and everything,” Jackson says. “This started with pizza ovens and progressed to ingredients, marketing manuals and eventually, franchisee training.”

First, Jackson and his original team started testing ways to improve baking and preparation efficiency by experimenting with new technology.

“The early 1980s was the onslaught of the conveyor pizza oven,” Jackson says, noting that Hungry Howie’s was open to the concept despite industry skepticism.

The conveyor oven allowed Hungry Howie’s to load pizzas in one end on a rolling belt and catch them at the other end when they were piping hot and ready to deliver. This way, Jackson could rest assured that ovens were adjusted to the same time and temperature for each store.

Next, he considered ingredients. Whole green peppers, blocks of cheese and pepperoni logs all required cutting, grating and slicing, and that takes time.

“We had to convert ingredients to usable product at the store level,” Jackson says. “There was a large opportunity for human error.”

But prepared ingredients cost more, requiring that franchisees trust that the systems developed at corporate headquarters are in the best interest of the organization.

“If you buy cheese in a block and go to the manufacturer and say, ‘We need you to cut this up a certain way,’ that costs more money,” Jackson says.

Gaining buy-in for that process at the store level can be difficult when you must convince owners that doling out extra dollars will pay off in efficiency and labor savings.

“When you go to franchisees and tell them that, they say, ‘We don’t want to pay that.’ (Corporate) has to prove why they will save labor costs and have better consistency.”

Proving each new system to franchisees was a constant struggle — and still is.

“It’s always hard to teach an old dog new tricks,” Jackson says. “We started with our base of people, and often they would tell us, ‘We don’t do it that way.’ Then we went through a process of education — the ‘show me and prove it to me that it will work.’”

Communicating tastes
Field consultants have always played a critical role in communicating new ideas and systems from corporate headquarters to franchisees.

Each consultant visits several stores, learning their strong points and weak points. Listening and observing is a large part of the field consultant’s job.

“Our field people look at execution at the store level, whether how they assemble a product or how they transfer a raw product to a usable product at the store level,” Jackson says. “We get feedback from the field first before making any decisions.”

Frequent field consultant visits filter communication from the corporate office to each store, reaffirming Hungry Howie’s open-door management philosophy. Franchisees are always invited to offer their ideas.

Communication is also facilitated by a Web site that outlines processes, answers questions and highlights new products. Hungry Howie’s weekly e-newsletter helps corporate constantly state its case. Annual meetings and training sessions ensure that franchisees are up-to-date on the latest processes and products.

And the communication has to go both ways.

Franchisees’ ideas become part of Hungry Howie’s secret sauce. For example, flavored crust — Hungry Howie’s No. 1 branding tool — was invented at the franchise level when one of the first store owners sprinkled sesame seeds on his crusts to make his pizzas look different from those of a competitor.

“The consumers in that market accepted it,” Jackson says.

Soon, another franchisee picked up the idea, and eventually, all 50 stores started selling flavored crusts. Soon, there were eight options for consumers.

“Throughout the years we added crusts, with three new crusts in the last 12 months,” Jackson says, demonstrating that systems and recipes constantly evolve and franchisees play a significant role in writing the menu.

They also have a say when an idea doesn’t taste right.

When Hungry Howie’s introduced thin-crust pizza during the Atkins diet craze, the cracker-crisp texture won over many pizza lovers who were hesitant to sink their teeth into the original crusts, Jackson says. But when the company experimented with low-fat cheeses, it didn’t get such palatable results.

“The bottom line is the pizza doesn’t taste good when you start (using low-fat products),” Jackson says. “We tested it in certain markets, and people gravitated back to the real thing.”

The best interests of franchisees are the core of such corporate decisions, Jackson says.

“What better vocal input can you have than from the people who are dealing in the business each day?” he says.

Jackson says franchisees respect the members of management because of their experience working at the store level. Buy-in becomes less of a struggle when franchisees know this.

“We are not sitting in an ivory tower making decisions,” he says. “As of today, this company is not run by a Harvard MBA. The vice presidents and directors in this company grew up in the business, and most have been with us for 10 to 20 years. By doing so, everyone, including myself, can look at a franchisee and say, ‘We need to do this for this reason.’”

Developing trust
Pizza Today estimates the pizza franchise business is a $30-billion industry. Competitors nickel and dime their way to the top, waging coupon wars to capture consumers.

“If we went to a drawer in your kitchen, it wouldn’t lack coupons — they are in your mailbox every day,” Jackson says. “Eighty percent of our orders are generated by a coupon. That is the nature of this business, and almost to a flaw.”

Jackson knows Hungry Howie’s must choose its battle — cheap, fast or best.

“You can’t be all three,” he says.

Slashing prices usually means sacrificing quality ingredients, and fast delivery can be dangerous to the driver. Being the best will probably cost customers more money, so they must think the pizza is worth paying the difference.

“We made a decision a long time ago to never compromise our products for any reason,” Jackson says.

This means relying on a management strategy of niche products — the flavored crusts and a calzone-sub hybrid for example — and a minimal coupon offering.

Jackson won’t resort to deep discounts, which dig companies into a deficit and cause either profit margin or product quality to suffer.

“You can identify this philosophy with any business,” he says. “Look at auto. Most recently, they offered consumers employee pricing. Where do you go from there? How do you get people to take the full price down the road?”

More important for Jackson, how do you ask franchisees to slash prices if you know it will hurt their bottom lines? He simply won’t do it.

“We try to be as competitive as we can, and when we make a marketing decision [for discounts], we have to be careful that our franchisees can still make money,” says Jackson. “We’ve watched our competition struggle with franchisee relations because of that.”

Trust is a critical element. If franchisees think corporate is profiteering at their expense, the close relationship will fall apart, and open communication goes with it. Jackson and others at the corporate office are careful about who they pick to be a franchisee, because ultimately, they have to trust the franchisee as much as the franchisee trusts them.

“Our management style is like a sports team,” Jackson says. “I might be the coach who can recruit the players and hold the team meetings and train them, but it’s up to them to execute it. It’s up to us to watch that they play fair and execute properly.

“Just having those good people in all aspects of our business and training them properly helps us reach our goals.”

Strength in stores
By focusing on systems, communication and trust, Hungry Howie’s has come a long way since its humble beginnings. The company has more than 500 stores, but you won’t find Hungry Howie’s everywhere — Jackson isn’t interested in pushing a thumbtack in every state on the map.

Rather, regional growth based on existing franchises will strengthen the brand.

“We’ve always maintained conservative, manageable growth,” Jackson says. “You read about chains that grow too quickly and there were many that were taking off and you thought they were the next best thing. Then they fell by the wayside, and some left the marketplace for good.

“Many times that is attributed to growth that took place too fast.”

Hungry Howie’s expansion will depend on distribution and existing locations. How easy is it to ship products to the location? If the franchise is close to other Hungry Howie’s stores, distribution is far more cost-effective.

Jackson shares success stories about franchisees like a proud father. The way he sees it, every time a franchisee opens a store, he welcomes another inspired member to his family.

“We’ve kept a family touch to the business,” he says, “and we will continue to do that as long as we can.

“Making a transition from mom-and-pop to a corporation is long and grueling. Thirty years later, we are still doing it so we can always be on the cutting edge.”

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